Archive for the 'Property & Debt' Category

When you and your spouse part ways, you divide what you own and what you owe, and great care is required because a misstep can ruin a credit rating as well as make for post-divorce court appearances.

If you live in a community property state, you are responsible for debts incurred during the marriage and it does not matter whose name is on them. If you live in an equitable distribution state, debts in your name are yours alone, but you are responsible for debts taken in your name, even those without your consent. In all jurisdictions, joint credit card debt is jointly owned.

Debt division has some fine points when a court becomes involved. For example, debts found to dissipation — for example, extravagant high living with a paramour — may be non-marital even though they are incurred during a marriage.

The most common and best way to deal with joint debt is the pay it off as part of the marital settlement — often using the proceeds of the marital house or other assets. By doing so, you and your spouse make a clean break from each other, and the two of your eliminate one friction point that can and does ignite when couples decide to share the debt and continue to service it together. Joint debt carries with it joint and several liability. This means that XYZ Credit Card Co. can go after each spouse individually for debt that is in both their names. The credit card company is not concerned with the terms and conditions of the separation agreement.

Dividing the joint debt and sharing it sounds reasonable because you have some control of the debt and don’t have to come up the all the money, but it carries the risk of damage to a credit rating if your spouse defaults on his or her share of the debt reduction. Once again, the creditor can come after you despite what a court says about debt division.

Assets and debts need to be divided when divorcing. However, the amount of debt or asset one spouse wants may be discretionary as long as the parties agree to the division. In other words, if the parties agree, dividing the debt and assets is what you decide so long as it is “fair”. If you want to give your wife the house and just walk away, no questions asked, that is acceptable, so long as you know what you are doing and there is no duress or coercion. However, when drawing up the Marital Settlement Agreement, one issue a judge will look at is “fairness”. Dividing assets and/or debts does not necessarily need to be a 50/50 split, but the courts do not favor one-sidedness. The court will want to know that the person taking on the debt with taking little in assets understands the consequences or responsibility with taking on such debt.

Additionally, the person taking the asset, such as a house, must remember that it may look good on paper, but can you really afford the upkeep of the house, mortgage, home owner’s insurance, taxes, maintenance of the home, etc. It may look as though you are coming out on the rosy side, but working the numbers is telling as to what is possible or not.

It is best when divorcing to work on a Marital Settlement Agreement that both parties can not only live with but afford. In the long run, what good comes if the home is lost to foreclosure and the party who took on the marital debt filed for bankruptcy and is free and clear of the marital debt?

Finally, remember that some creditors are not bound by the Marital Settlement Agreement agreed to by the parties. Joint and individual liability still exists for some creditors. It is best to know if the debt is in both names, just one parties’ name or if the credit card company, for example, is able to come after the ex-spouse for repayment.

You’ve just inherited a large sum of money from your great-aunt Esther. Now, what to do with the funds. Do you place the money in a joint bank account? Do you keep the money separate, just in case since you and your spouse have had problems and contemplated divorce in the past? Or do you pay for the much needed roof and other upgrades on the marital home thinking you will get a higher selling price if you need to sell the home?

The first thing you need to understand is if the inheritance will fall under the Marital Property Act as community or separate property. Most states see an inheritance as separate property but some, do not. If an inheritance is seen as separate property you need to know if there are ways a state would see the inheritance as community property.

For the most part, as long as the inheritance is not used for the “benefit” of the marriage for you and your spouse, the funds should remain separate property. However, to protect the inheritance, you should seek the advice of a qualified financial expert and/or lawyer. Additionally, community property states may look at inheritances differently so it is very important that you know how the inheritance will be affected if a divorce should occur.

One issue that plagues divorcing couples is finances. Women, you need to know what finances go through the home. Do not fall victim to the “ignorance is bliss” attitude when it comes to finances. Letting your spouse take care of all the financial aspects of the marriage/household is fine but you must know about the finances should divorce ever become a possibility. If you do not know what debts or assets you have, how can you benefit from them? Or, what debts out there in your marriage can come back to haunt you?

Not knowing about your finances is an easy way to get taken to the cleaners. Your spouse can easily hide assets quickly as you never knew they existed. Arm yourself with knowledge, before the possibility of a divorce. You may never need the information, but what happens if you find yourself in need of it? Will your spouse willingly give up the financial information? You cannot bank on a friendly divorce. It is a goal to be sure, but not an absolute.

Pensions, 401ks, and other retirement funds are considered marital assets in equitable distribution states. This means that the portion earned during the marriage is part of the marital estate that is up for division at the time of divorce.

The pension is typically valued by a professional to determined the present value of the pension. The present value is not the current value on the past statement, but rather a calculated value of what it will be worth at the time of retirement.

The pension is often offset by another marital asset, such as a lump sum payment or equity in a home. This avoids future risk on the receiving party, because he or she would not get his or her share of the pension until the participant reaches the required age.

If there is not an asset to offset the pension’s value, a Qualified Domestic Relations Order is typically drafted to execute the action of paying out a portion of the pension to the receiving spouse at the time the participant reaches the required age. This document is very imporant and is typically drafted and submitted to the court after the divorce is final.

Any portion of a business that is owned by a spouse for any period of time during a marriage is typically considered marital property under equitable distribution laws.

The portion of the business that a spouse is typically entitled to is as follows:

One half of your husband’s interest that increased during the marriage.

For example:

The day you got married the business was valued at $200,000.00 making your husband’s interest worth $100,000.00 (since he is a 50% partner).

At the separation date the business can be appraised at being worth $500,000.00, making your husbands interest worth $250,000.00.

You would be entitled to 50% of the increased portion ($150,000.00), which would be $75,000.00.

The state that you are divorcing in would apply the appropriate distribution laws. This above example pertains to an “Equitable Distribution” state, which means that the property is dividing in a fair and equitable fashion.

Here is an example of the typical factors considered by an equitable distribution state. Please keep in mind that these factors will vary from state to state.

The court may divide all of the spouse’s property, including any gifts and inheritances, based on the following factors:

(1) the contribution of each spouse to the acquisition, preservation, or appreciation in value of the property, including the contribution of each spouse as homemaker;

(2) the length of the marriage;

(3) the age and health of the spouses;

(4) the occupation of the spouses;

(5) the amount and sources of income of the spouses;

(6) the vocational skills of the spouses;

(7) the employability of the spouses;

(8) the liabilities and needs of each spouse and the opportunity of each for further acquisition of capital assets and income;

(9) the conduct of the parties during the marriage (if the grounds for divorce are fault-based); and

(10) any health insurance coverage.

Fault is not a factor if the grounds for the divorce are irretrievable breakdown of the marriage filed in conjunction with a separation/settlement agreement.